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Final Order Prohibits Retail Suppliers From Using Term "Renewable Energy" In Marketing REC Products; Term Limited To Using Supply From Owned Generation Or PPA

Order Limits Voluntary Renewable Offerings From Retail Suppliers To RECs From Certain RTOs

October 21, 2020

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Copyright 2010-20
Reporting by Paul Ring •

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The Connecticut PURA issued a final decision that, among other things, limits voluntary renewable electricity supply offers (VRO) from retail electric suppliers to using only RECs sourced from certain RTOs, and which prohibits the use of the term "renewable energy" to market a REC product

Note: VROs are generation supply offers from load-serving retail electric suppliers that contain some type of qualifying renewable components as discussed below. REC-only products, as used in this story, refer to offers under a PURA-authorized program under which RECs (and not generation supply) may be purchased by a customer with costs included in the utility consolidated bill (UCB), under a successor to the current Clean Energy Options REC add-on program (CEOP).

Specifically, the order establishes certain universal standards for REC-only and suppliers' VRO offers as follows:

(1) Certificates that support VROs or REC-only offers may originate only from the ISO-NE, New York, or PJM control

(2) Certificates that support VROs or REC-only offers must reflect resources defined as Class I in Conn. Gen. Stat. § 16-1.

Effective January 1, 2021, all new and renewing VRO offers must comply with the rules and standards established in the order for all customer enrollments (treatment of existing contracts discussed below)

The order prohibits suppliers from using the term "renewable energy" for REC-based VRO products. Under the order, a supplier may not market the product as "renewable energy" unless the offer is supported by an ownership interest in or PPA for a renewable resource used to serve the contract.

"Suppliers may not market certificate-based VROs to mislead consumers to believe they are purchasing renewable energy rather than RECs ... There is a clear distinction between certificates and the ownership interest in, or a PPA to provide energy from, a renewable source," PURA said

"Because certificates do not represent renewable energy offers, but instead are renewable certificate offers, suppliers must clearly provide that language through marketing materials, contracts, and the Certificate Information portion of the Disclosure Label. The supplier may not market the product as 'renewable energy' unless the offer is supported by an ownership interest in or PPA for a renewable resource used to serve the contract. To do so would mislead consumers to believe they are buying renewable energy, not renewable certificates. Certificate and Supply Information must be clearly explained and separately displayed on the Disclosure Label as sides one and two," PURA said

Further discussing requirements for a to-be-developed disclosure statement (noted below), PURA stated, "It is reasonable to display information as representing a renewable source for an offer if the supplier owns, or has a PPA with, these resources and is using them to supply the electricity for the offer. It is unreasonable to display this information if the supplier is merely buying the certificates associated with the renewable attributes."

PURA further said, "As it relates to power sources, the Supply Information portion of the label can only provide the generation mix of the resources used to support the offer. For example, if a supplier relies on the regional system mix to supply an offer, the power source data should so reflect. If a supplier owns generation resources or has a PPA with one or more generation resources and uses that energy to supply an offer, the power source should display that information. However, suppliers cannot include certificate information to support power source data. Doing so implies that the customer is buying renewable energy when in fact the customer is supporting the certificates for power sources that are not providing the customer’s generation supply. Certificate information therefore cannot be included in the power source data and power source information cannot exceed 100%."

PURA said, "The suppliers argue that the distinction between purchasing RECs and purchasing energy through a PPA is even more confusing to a customer than the current REC explanation, and point out that even if a supplier purchases energy through a PPA, that energy does not necessarily (and even is quite unlikely to) reach the customer purchasing the VRO. The Authority has not, and specifically does not, instruct suppliers that they should tell customers the customers are 'using' renewable energy. As all Parties conceded, once electrons flow to the grid there is no way of knowing where the energy any given customer is using was produced. The Authority is drawing the distinction between purchasing RECs and purchasing renewable energy. A customer whose VRO is part of a PPA purchases renewable energy, not RECs. The customer may never directly use the renewable energy they purchase, but they nonetheless purchase it."

PURA added that, "It can be said of VROs that are supported by RECs or those supported by an ownership interest or a PPA that either supports the renewable market -- RECs by providing additional revenue through purchase of attribute certificates and direct ownership or a PPA by directly purchasing the renewable production. If suppliers are concerned about customer confusion, they may accurately make this claim in their marketing."

PURA noted that statute requires that suppliers provide information about RECs above the RPS prior to enrolling a customer in a contract. "[T]he supplier must disclose such information in the customer’s contract and marketing materials; therefore, the statute does not contemplate an after-the-fact disclosure," PURA said

"Furthermore, the statute requires suppliers to disclose 'the types of renewable energy sources that will be purchased' (emphasis added), not the types of RECs that were purchased. The Authority reads the statute as requiring a forward-looking Disclosure Label," PURA said

As such, the Authority ordered the establishment of a working group (Disclosure Label Working Group) to provide such disclosures to customers and to finalize revised labels by December 1, 2020. The Disclosure Label Working Group must provide recommendations for the separate RPS, RPS/VRO and REC-only Certificate Information labels and the Supply Information label. The Authority attached to its order revised draft labels intended to provide a concise, at-a-glance, and easily understood two-side format that distinguishes Certificate and Supply Information to avoid customer confusion. PURA notes that the attached labels are drafts, simply meant to be a starting point from which the Disclosure Label Working Group may continue to develop.

Specifically, PURA directed that the Disclosure Label Working Group propose a way to display the power source, emissions and environmental characteristics associated with each VRO and REC-only offer. The Disclosure Label Working Group shall also propose the frequency with which information such as NEPOOL system mix should be updated, e.g., monthly, quarterly, annually.

The Authority in its decision provided revised sample Disclosure Labels to align with this Decision and for use by the Disclosure Label Working Group in making final recommendations.

"[T]he attached labels are not meant to be final drafts, but are meant to be a starting point from which the Disclosure Label Working Group may continue to develop," PURA said

Of note, Attachment 1 is the Certificate Information Disclosure Label for offers that meet the RPS. Dates and RPS percentages, identified as bracketed, must be timely adjusted to reflect then current annual information. The Authority will require that this information be changed on Disclosure Labels provided to customers for enrollments that occur on or after November 1st annually.

Attachment 2 is the Certificate Information Disclosure Label for VRO offers. For VROs, this Disclosure Label must include the RPS information, upper portion, and provide separate VRO data in the lower portion.

Attachment 4 is the Generation Source Information Disclosure Label for RPS and VRO offers. This information is not required for REC-only products. Generation Source information will be displayed as the back page or opposite side of the Disclosure Label for RPS or VRO offers for the Certificate Information and must use a separate visual to distinguish Certificate and Source information.

See the proposed attachments in PURA's order here

Further discussing disclosure of power sources to customers, PURA said, "Some suppliers currently use the ISO-NE system mix to serve VRO load. Others rely on an ownership interest in a generator or a PPA ... The power source for generation resources owned by or under long-term contract with a supplier and serving customer load would be known and can therefore be more accurately provided through the Disclosure Label. However, the ISO-NE system mix changes hourly. It is impractical to constantly update this information to reflect these changes; however, it is reasonable to require that the data be updated periodically. The Disclosure Label should also educate consumers regarding the ISO-NE website and the information provided there."

PURA noted that, "The statute requires that a supplier marketing a VRO provide information to substantiate such claims on its website. The Authority will require that any offer posted to the Rate Board include a link to the Disclosure Label for each product. This includes RPS, VRO, and REC-only offers. In addition, the supplier must provide its customers with the information necessary to substantiate their prospective claims as well as past VRO claims on their website. The supplier’s website must also provide the Disclosure Label for any offer that is not listed on the Rate Board, such as offers that are sold through telemarketing, direct mail, or that otherwise may not be generally available."

Further discussing disclosure, PURA stated, "The Authority finds that stating a VRO is nationally sourced or including all possible energy sources ignores the plain language of Conn. Gen. Stat. § 16-245o(h) and does not offer the specificity required by the statute. Stating that a VRO is nationally sourced does not indicate 'where such additional credits are being sourced from;' likewise, listing all possible energy sources does not indicate 'the types of renewable energy sources that will be purchased.' Conn. Gen. Stat. § 16-245o(h) (emphasis added). Conn. Gen. Stat. § 16-245o is a consumer protection statute, and therefore it must be interpreted in a manner that offers proper protections to the consumers purchasing VROs. Consumers must understand at the time of their purchase what they are buying; this includes both the resource and location supporting the VRO. Therefore, all Disclosure Labels must include the resource supporting the VRO and the location of that resource and must be provided to the customer at the time of enrollment in the contract."

"The Authority will allow suppliers to identify the type of resource and regional control area to satisfy this requirement. For example, the Disclosure Label may state that VRO RECs will be sourced from New England solar certificates, New York wind certificates, or PJM hydroelectric certificates if the supplier knows only that degree of specificity at the time the customer signs the contract. However, to improve market education, the Authority encourages a supplier to provide more specific detail with regard to the location of the facility if known. For example, there should be adequate space on the Disclosure Label for the supplier to include the name of the facility and its exact location in the region or state in which it intends to procure the RECs if known. The Authority notes that the Disclosure Label Working Group may consider use of a map on the label to reinforce certificate location. The Disclosure Label Working Group should collaborate to recommend the manner in which the location of VRO RECS [sic] should be provided on the Disclosure Label in a manner that meets the Authority’s statutory interpretation described herein," PURA said

PURA ruled that VROs may only include RECs purchased above the RPS amount

"To be clear, the VRO percentage cannot include any portion of the RPS. The Authority finds that many customers are unaware of the current RPS or that it will continue to increase annually and reach 48% by 2030. The VRO must be separate on the Disclosure Label from the RPS data. The Authority finds that marketing VROs must be transparent and part of that transparency includes disclosing the current RPS as well as the amount of the VRO that exceeds the current RPS through the Disclosure Label. This strategy will further educate consumers about the RPS," PURA said

As stated above, certificates for VROs and REC-only products that support such offers may originate only from the ISO-NE, New York, or PJM control areas and that the certificates must reflect resources defined as Class I in Conn. Gen. Stat. § 16-1.

"The Authority finds that all CEOP offers and all VROs must use RECs sourced from NEPOOL GIS or the adjacent control areas of New York and PJM. As indicated, the New York and PJM control areas are located in a favorable geographic direction to reap the most benefits for Connecticut; whereas resources in Canada or further west or south of New York and PJM are unlikely to provide any measurable benefits toward Connecticut’s clean energy goals. Under the current lack of regulation, customers are paying premiums for products that do not benefit Connecticut or New England. Moreover, due to the current configuration of Disclosure Labels, discussed later, customers may not realize they are paying a premium for a product that does not benefit Connecticut or New England. By limiting the geographic region from which CEOP and VROs can be sourced, and requiring clear disclosure as to location upon enrollment, the Authority ensures customers receive offers that further Connecticut’s clean energy goals," PURA said

"Many more customers are participating in CEOP and VROs now than were fifteen years ago. These customers not only need to fully understand the products for which they are may be [sic] paying a premium, but the Authority must also ensure that these products are furthering Connecticut’s clean energy goals. The Authority notes that current VROs contribute minimally, at best, to Connecticut’s environmental betterment. See DEEP Written Comments dated December 20, 2019 ('Moreover, the majority of VRO RECs offered in Connecticut are sourced from outside New England, and their purchase by Connecticut customers does not effectively further Connecticut’s public policy goals and may not align with customers’ intent when choosing electric supply options beyond the RPS.')," PURA said

PURA said that, "claims related to certain nationally-sourced RECs may conflict with the goals that consumers likely intend to achieve through their premium."

"Furthermore, RECs from western sources such as Texas windmills do not ensure additionality that continues to provide benefits to Connecticut and furthers Connecticut’s clean energy goals," PURA said

"The Authority will limit VRO and REC-only products to certificates created from generation that meet the standards for Connecticut Class I resources as defined in Conn. Gen. Stat. 16-1," PURA said

"Limiting the eligible certificates to Class I resources located in the NEPOOL-GIS and the allowed control areas reinforces the state’s support for construction of additional solar, wind and other similar clean, sustainable renewable generation that will benefit Connecticut and New England. The limitation also ensures that customers will support VRO and REC-only products that facilitate the state’s goals and align with the customers’ intent when paying a premium for these products," PURA said

In terms of compliance, "To simplify program rules, the Authority will require that certificates used to fulfill REC-only and VRO obligations, but settled through other tracking systems, must follow the NEPOOL GIS settlement requirements. Certificates retired within NEPOOL GIS must comply with then-current GIS rules for the calendar year in which the load was served. This aligns the certificate settlement rules for REC-only and VRO offers with NEPOOL GIS," PURA said

PURA ruled that residual mix certificates may not be used to meet REC-only or VRO certificate obligations.

PURA is also requiring that VRO certificate settlements must be verified by a third party

"The Authority finds that to facilitate transparency, and to improve administrative efficiency and review, all VRO and REC-only certificates sales and settlement must be verified by an independent third party. As previously noted, the EDCs effectively provide third party verification of REC-only sales. Therefore, REC-only transactions will not be subject to further third party sales verification beyond that of the EDCs, but will be subject to a third party verification of settlement of certificates. For VROs, there currently is no sales verification process comparable to the EDC verification of REC-only sales; nor is there any verification of VRO certificate settlement. As a result, the Authority will require that suppliers support all VRO claims through audited VRO sales and certificate settlement verification data," PURA said

"To facilitate review of VROs, the Authority is requiring that suppliers support all VRO claims with documentation that the sales and certificate settlement verification has been reviewed by an independent third party. The Authority does not require that the verification be conducted by accountants, but clarifies that REC tracking systems do not offer the marketing/sales reconciliation and verification being required herein. An independent third party must document the number of RECs that should have been retired in addition to verifying that the number of RECs that were retired align with the VRO products being marketed to consumers, and that verification must now be submitted to the Authority so it can better monitor VROs," PURA said

Beginning with 2020 RPS compliance, any supplier marketing a VRO will be required to include the following as separate information to support its VRO load and REC settlement compliance:

1. Third party verification/attestation of its VRO load;

2. Third party verification/attestation that the appropriate RECs were settled;

3. Copies of the VRO Disclosure Label(s).

PURA said, "Suppliers may use Green-e for their VRO sales and REC verification or engage a similar third party auditor who can attest to the accuracy of information it files with PURA regarding VROs. Unlike REC-only suppliers who are paid upon verification of REC settlement, under POR, generation suppliers are not required to demonstrate VRO compliance to be reimbursed. Therefore, noncompliance with VRO REC obligation is subject to penalty under Conn. Gen. Stat. § 16-41."

PURA noted that suppliers offering VROs have REC obligations under existing contracts.

"Suppliers will be allowed to honor these agreements until their initial contract expires, but suppliers will not be allowed to automatically renew these contracts without ensuring the VRO component complies with the standards required herein," PURA said

"Effective January 1, 2021, all new and renewing VRO offers must comply with the rules and standards established herein for all customer enrollments," PURA said.

REC-Only Contract (Successor To Clean Energy Options Program, CEOP)

PURA also adopted changes for REC-only products billed through utility consolidated billing, which will be a successor to the current Clean Energy Options Program. The REC-only products program, billed through UCB, does not include supply, and is a REC add-on open to customers regardless of their supplier, and can be elected by non-shopping customers.

Any new REC-only contract entered into with a customer as of January 1, 2021, must meet the new standards, many of which mirror the VRO standards and noted above.

In terms of current CEOP suppliers, PURA said, "Because current CEOP Suppliers have contracts for the purchase of RECs based on their current participation in the program, current customer contracts will be allowed to continue until January 2022."

Under the new REC-only UCB program, the Authority will limit REC-only suppliers who participate in utility consolidated billing to one offer that must include a 50% and 100% option.

The Authority will cap the number of participating REC-only UCB suppliers at three (the current limit) until 2025. "To assist the Authority’s ability to assess future needs, the Authority will allow the current CEOP Suppliers to participate in the revised program until 2025, subject to the conditions discussed herein," PURA said

"In 2025, the Authority will reopen the instant proceeding to evaluate program participation to determine if the number of participating suppliers should be increased to five or if it should make any other changes to the program," PURA said

PURA will not require EDCs to market the REC-only program

"The Authority seeks to offer a REC-only program while limiting EDC cost and administrative work; therefore, the Authority will not require the EDCs to assist with marketing this effort. However, the Authority intends to provide REC-only information through the website, which will provide cost-effective program support. The Authority will take steps to display REC-only information through to explain REC-only offers and avoid the potential for customers to confuse REC-only offers with generation supply plans," PURA said

PURA will require REC-only providers to provide contracts and disclosures similar to those used for generation supply service

"The CEOP Suppliers advocated for not providing customer contracts; however, the Authority finds that mandating contracts for REC-only customers provides similar protections for consumers as is required of other electric suppliers. REC-only customers must fully understand the offer in which they have enrolled, length of the contract, and cost thereof. Therefore, REC-only suppliers must provide contracts to all customers. REC-only suppliers shall submit their contract and summary under their licensing docket for Authority approval prior to use," PURA said

In addition, REC-only suppliers must provide a Contract Summary that shall be similar to that approved for use by suppliers offering generation supply, PURA ordered

The Authority will require that REC-only rates remain fixed on a calendar year basis. Suppliers will be allowed to adjust their rates but must submit revised rates to the EDC no later than November 1st to implement a change for the upcoming calendar year. If the change is not timely submitted, the then current rate will be locked for the upcoming calendar year, PURA ordered

The Authority will implement the REC-only program for new contracts by January 1, 2021

"The CEOP Suppliers must execute new contracts, reflecting the requirements noted herein, with all existing customers prior to year-end 2021 for participation in the new REC-only beginning on January 1, 2022. If there is no rate change as part of the new contract, no EDI transaction with the EDC will be necessary. If there is a rate change, any price change must meet the standards discussed herein," PURA said

Docket 16-12-29

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